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National law firms are spending $10 million to $12 million a year each to direct Google searches to the websites they control in an effort to find new clients to file lawsuits against insurance companies, according to 4Warn, a data analytics company based in New Hampshire.
Joseph Petrelli, co-founder of 4Warn, says the increase in new litigation created by search engine optimization techniques led directly to the insolvency of several Florida insurance companies. His company provides consulting services to insurers to mitigate what Petrelli calls “technology-enabled claims instigation.”
Petrelli said his company looked for patterns after buying a database of billions of insurance-related search results from Google. He and 4Warn co-founder Ted Kozikowski presented their findings during a webcast last week with Artemis, a website that reports on the reinsurance industry.
“We’ve always had litigation in the insurance industry,” Petrelli said. “What we’re talking about now is the ability to accelerate the frequency of claims from opportunists.”
4Warn is not the first company to see an increase in insurance litigation. Lex Machina reported last month that there was a 30% increase in the number of lawsuits involving insurers in federal court since last year. The number of federal insurance claims has been steadily increasing since 2017, Lex Machina said.
Petrelli
Petrelli said the impact of a successful lawsuit against an insurer did not go beyond the cost of the award. But that was before technology.
“Now the litigator can get financing through a litigation marketing firm and say, ‘Go get me as many policyholders as you can from XYZ Insurance Co. because they have bad policy coverage,” he said. “Opportunists know it will take at least a year for a fix filed with the insurance department to fix the problem until it gets passed on to other policyholders.”
Petrelli is an actuary. He said the liquidation of six Florida insurance companies over a five-year period piqued his curiosity. He is the founder of Demotech, a company that provides financial stability ratings for companies that are often overlooked by the big rating houses.
Petrelli said Florida insurers have long been accustomed to a disproportionate number of lawsuits, compared to other states. Carriers are beefing up their reserves to deal with the litigation. But something changed around 2016. He said he knew something more than billboards and advertising from the plaintiff companies was driving a large number of new lawsuits.
St. John’s Insurance Co. is an example. The company was involved in 180 lawsuits in 2016. The number of lawsuits has doubled every year since then, reaching 3,508 in 2021. The Florida Office of Insurance Regulation declared the company insolvent in 2022.
Petrelli asked Kozikowski, an expert in data analysis, to help him figure out what was going on. After buying data from Google, the two concluded that leads generated through Google searches were driving the increase.
Anyone who has used Google to search for a topic is likely to know that the results that appear at the top of the results are “sponsored”, meaning that some company pays to appear prominently on the search return page . Petrelli said law firms and public adjusters buy the rights to search for terms such as “XYZ insurance” or “Hurricane Ida claims help.” The data showed that one public adjuster was spending $650,000 on sponsored search returns.
Kozikowski said in an email that five large law firms spend about $45 million a year on Google search results. He said some of the 43 law firms that 4Warn initially identified as return buyers of Google search have “established themselves” in recent months, but new law firms have emerged that are spending $5 million dollars each in Google searches.
When Internet users click on a sponsored search result, they are taken to the sponsor’s website. Now, a homeowner who might have been trying to figure out how to contact their insurer’s claims department instead contacts a law firm or public adjuster, Petrelli said.
Petrelli said data they bought from Google showed a national law firm was spending $861,000 a month on sponsored Google search results.
Petrelli declined to identify the law firms that spend on Google search returns. He said he doesn’t want to invite litigation. 4Warn provides its clients with the identities of the law firms and keywords they are buying, he said.
Petrelli he presented his findings to the Market Regulation and Consumer Affairs Committee of the National Association of Insurance Commissioners in March. He said regulators were interested, but most told him there was little they could do because there was no evidence anyone was breaking the law.
But Petrelli says as an actuary, he finds it unlikely that law firms and public adjusters who invest so much in Google search returns will always follow the law. He said the revelation earlier this year that McClenny Moseley & Associates used a marketing firm to generate leads shows how that data can be misused. The Houston-based law firm is accused of trying to settle insurance claims on behalf of homeowners it did not represent.
MMA filed more than 1,600 lawsuits in the Western District of Louisiana over several days. Petrelli said law firms that invest in search engine advertising are working to achieve similar numbers, which will increase the frequency of claims.
“Without control over the frequency of claims, insurance companies will quickly lose control over the adequacy of rates,” he said. “There is no doubt. It’s just the actuarial formula.”
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